This is an excerpt from Ted Butler’s latest newsletter to his paid subscribers. We strongly encourage readers to subscribe to the newsletter on www.butlerresearch.com for in-depth analysis in the gold and silver markets.

A long time subscriber asked a question this week that I would imagine may be on many minds: “Ted, you have frequently stated that all manipulations must end. Why is that? After 25 years it still appears to be going strong. Why can’t it go on for another 25 years, or for infinity?”

That’s a great question. First, let me define all manipulations as being commodity price manipulations, as opposed to manipulations of other things. We have documented experience in such commodity market manipulations over the past decades, including copper, soybeans, potatoes and even silver in 1980, to the upside. All these previous manipulations did end and ended dramatically, but I admit that doesn’t prove conclusively, by itself, that such manipulations must end.

What I think mandates that all commodity price manipulations must end is the law of supply and demand. Actually, this law would be better termed the law of supply and demand and price, because supply and demand are balanced by the fulcrum of price. If a price is set artificially too high, eventually supply increases and demand decreases to the point where the price must collapse. Likewise, if a price is set artificially too low (as I allege in silver), eventually supply is reduced and demand is increased to the point where the price must explode.

Therefore, an artificial price, either too high or too low, will distort the forces of physical supply and demand to the point of a radical rebalancing of the price. Incidentally, the distortion of the free market forces of supply and demand by an artificial price causes such collateral damage to the workings of a free market economy that explains why preventing manipulation is the most important mission of the CFTC and is at the heart of US antitrust law.

The difference between most prior manipulations (except potatoes in 1976) and the current silver manipulation is that they were upside manipulations, which are much easier to understand. Most people grasp that if a single entity buys such a large percentage of an item that it can create a corner on the market and force prices higher, whether by the Hunt Bros in silver or the Sumitomo trader in copper. More people have trouble with the concept of short selling (selling something that you don’t own) than the concept of buying something you don’t own. But a controlling market share can artificially set prices to be either too high or too low and invariably the law of supply and demand and price will force a radical change for the price.

It is said that no one entity is bigger than the market. I hold this to be true because of the law of supply and demand and price. While I believe that JPMorgan has set an artificial low price in silver by virtue of their massive concentrated short position I also believe the forces of real silver supply and demand must overwhelm JPM’s artificial price setting. The real key to the price is timing. Specifically, when will the forces of supply and demand overwhelm JPMorgan’s rigged lower price of silver? Usually, I answer that I’m an analyst not a prophet to explain my reluctance in timing such an event, but I’m going to look at it differently today.

The truth is that the downward silver manipulation has lasted much longer than I ever imagined it would, especially considering just how successful I have been in convincing others that it exists. This manipulation has existed for more than 25 years, so what guarantee is there that it can’t last another quarter of century or forever? The guarantee lies in the law of supply and demand and price. The guarantee is that if the price is set artificially low, there will be enough of an increase in demand and decrease in supply to eventually cause the price to explode. I think the key here is to look at what’s on the scoreboard rather than dwell on what we want to be on the scoreboard. Let’s face it – most of us want this manipulation to be over and for the price to explode already. When it doesn’t explode we naturally imagine that it may never explode (especially on down days). I would ask that you look at it differently.

Instead of focusing on why the silver manipulation hasn’t already ended amid increased demand and restrained supply, try to look at what has occurred in the real world of silver supply and demand over the past 25 years. If silver had been manipulated and the price was kept artificially lower over the last quarter century (as I allege) then certain supply demand factors should reflect that. I think those factors are visible.

For one thing, there is far less above ground silver in the world than there was 25 or 75 years ago. Twenty five years ago, there was close to three billion oz in silver bullion inventories and seventy five years ago there was ten billion oz. Today, there’s only a bit over one billion ounces. If silver wasn’t manipulated in price, then where did all that silver go? I didn’t say that prices didn’t go higher (over the past 6 years or so) just that if prices weren’t artificially depressed in price the world wouldn’t have eaten up so much of it. Further, the billion ounces of silver bullion that does still exist is now owned by a radically different type of owner than held silver 25 or 75 years ago. I claim these new owners are much more aware that silver has been artificially depressed in price and that is the main reason they have chosen to own it. This new set of owners is not interested in selling until the artificial low price is rectified.

Yes, the mine production and consumption of silver has grown over the past 25 years, but that’s more a function of by-product mining gains and the growth of population and world economic growth. The lynchpin is the drop in inventories from 25 and 75 years ago. If silver weren’t artificially depressed in price, that wouldn’t have occurred. This article is about silver, but I can’t help but highlight the difference between silver and gold. Whereas silver inventories had declined drastically (until recently), world gold inventories have done nothing but expand over every time period.

Particularly instructive is what has occurred in silver supply and demand recently, say the last two years. There are more signs today that physical silver demand is closer to overwhelming supply than ever before due to the artificial low price. I didn’t know it at the time, but in hindsight the world was on the brink of a physical silver shortage for the first time in history around the April 2011 high in price. We ran up from $20 to $50, from the fall of 2010 not because of speculative buying on the COMEX, normally the key price driver. By process of elimination, it had to be physical demand overwhelming physical supply, because nothing else could explain the jump.

I guess what I’m saying is that instead of wondering why the silver manipulation hasn’t ended yet, look at all the accumulating evidence that demand is overcoming supply. Silver is tighter today than it has ever been (except in April 2011). If these signs weren’t present, then there might be some worry about how much longer the artificial low price could persist. But these signs do exist and it’s up to us to recognize them for what they are, namely, confirmation points of what must occur.

This is an excerpt from Ted Butler’s latest newsletter to his paid subscribers. We strongly encourage readers to subscribe to the newsletter on www.butlerresearch.com for in-depth analysis in the gold and silver markets.

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Well, no Ted, there is another reason that could explain Silvers move in 2011. Simply that JPM allowed the price to rise to create a mini mania only to pull the rug out and reaping a nice profit. It’s called pump and dump.

GOLD & SILVER PRICE

The recent rally is respectable because Gold pushed through several significant resistance areas in the process. The is break through $1181 to $1188, then the round-number at $1200 along with the 50 day exponential moving average which is also at $1200. After the recent 70 run Gold deserves a break to consolidate its gains and gather energy for the next push higher.

For the week commencing March 30th, quite some economic data are scheduled to be announced, as seen in the table below. There is no central bank announcement on the agenda. Tuesday is a busy day, with the European CPI and U.S. consumer confidence data being released, among many other data. We believe the nonfarm payrolls and unemployment rate in the U.S. on Friday have the potential to create some volatility in markets and metals, but at the same time, as it will be Good Friday, we expect a neutral reaction. The “joker” in the coming week(s) is the evolution of the geopolitical situation in the Middle East. Obviously, there is a potential for increased demand of a “safe haven” asset if things would go wrong in the Middle East.

So many “experts” have so much to say in correlating the current prices for gold and silver with factors like how much gold China and Russia have been accumulating, the shortages of and demand for physical PMs, hypothecating, rehypothocating [aka stealing] of gold by Western Central Banks, the record sales for gold and silver coins, world-wide, etc, etc, etc. Yet, with all of the pinpoint accuracy in reporting, backed by statistics, graphs, charts with arrows drawn in to show the next direction [always wrong] for PMs, there has been little demonstrable cause and effect relations between events and prices. We have two.